Correlation Between Northern Lights and Zillow Group

Can any of the company-specific risk be diversified away by investing in both Northern Lights and Zillow Group at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Northern Lights and Zillow Group into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Northern Lights and Zillow Group Class, you can compare the effects of market volatilities on Northern Lights and Zillow Group and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Northern Lights with a short position of Zillow Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Lights and Zillow Group.

Diversification Opportunities for Northern Lights and Zillow Group

-0.22

Correlation Coefficient

Northern Lights  Zillow Group

Very good diversification

The 3 months correlation between Northern and Zillow is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Northern Lights and Zillow Group Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zillow Group Class and Northern Lights is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Northern Lights are associated (or correlated) with Zillow Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zillow Group Class has no effect on the direction of Northern Lights i.e., Northern Lights and Zillow Group go up and down completely randomly.

Pair Corralation between Northern Lights and Zillow Group

Given the investment horizon of 90 days Northern Lights is expected to generate 0.36 times more return on investment than Zillow Group. However, Northern Lights is 2.82 times less risky than Zillow Group. It trades about -0.23 of its potential returns per unit of risk. Zillow Group Class is currently generating about -0.25 per unit of risk. If you would invest  3,244  in Northern Lights on January 26, 2024 and sell it today you would lose (119.00) from holding Northern Lights or give up 3.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Northern Lights  vs.  Zillow Group Class

Northern Lights

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Lights are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Northern Lights is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Zillow Group Class

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Zillow Group Class has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Etf's basic indicators remain fairly strong which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long term up-swing for the ETF investors.

Pair Trading with Northern Lights and Zillow Group

The main advantage of trading using opposite Northern Lights and Zillow Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Lights position performs unexpectedly, Zillow Group can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Zillow Group will offset losses from the drop in Zillow Group's long position.

The idea behind Northern Lights and Zillow Group Class pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Bonds Directory module to find actively traded corporate debentures issued by US companies.